NRI Real Estate Investment in India: Rules, Taxes, Exits

You moved to Sydney in 2019, left a two-bedroom flat in Pune with a property manager, and now the sale you postponed for years is finally happening. The buyer's lawyer emails a list: TDS must be deducted under the non-resident provisions, not the 1% your resident neighbour paid, and the rate is not one number but a stack of percentages you have never seen. Meanwhile FEMA quietly decides where the sale money is allowed to go afterwards. NRI real estate is one topic written across two law books, and the expensive surprises live where they overlap.

This post walks the whole journey in the order it actually happens: what FEMA lets you buy and how you may pay for it, what renting out involves, what the buyer withholds when you sell, which capital-gains exemptions still work for you, and how the proceeds leave the country. The account plumbing behind all of it — NRE versus NRO versus FCNR(B) — is covered in our NRE, NRO and FCNR accounts guide, and the wider investing map sits in our complete NRI investing guide.

What FEMA lets an NRI buy

The foreign-exchange law starts with a general permission. An NRI can purchase residential or commercial property in India freely — no approval from RBI, no filing of documents with the Reserve Bank afterwards. What the same rule expressly excludes from purchase is agricultural land, plantation property and farmhouses. You can, however, hold such land if you inherited it or received it as a gift from a person resident in India, and you may hold anything you owned before you became a non-resident. Source: RBI Master Circular on Acquisition and Transfer of Immovable Property in India by NRIs/PIOs, issued under the FEMA (Acquisition and Transfer of Immovable Property in India) Regulations (originally Notification FEMA 21/2000-RB dated May 3, 2000, since re-notified in the 2018 Regulations).

Two boundary rules sit next to the general permission. Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan need prior RBI permission to acquire or transfer property in India (a lease not exceeding five years is the exception). And joint ownership with a resident relative — a parent or spouse on the title — is common and permissible, with the funding and gift-tax consequences of any resident contribution worth a CA's look before, not after, registration.

On money, the payment channel is prescribed. The purchase price must move through inward remittance from abroad by normal banking channels, or by debit to your NRE, FCNR(B) or NRO account. Payment by traveller's cheque or by foreign currency notes is specifically not allowed. Source: RBI Master Circular, payment-for-acquisition provisions. In practice this makes the funding source a decision you make before you sign the agreement, because it decides what happens at exit: money that came in through NRE or FCNR keeps its repatriable character; money from NRO does not.

Financing is routine: AD Category-I banks and housing finance companies lend to NRIs for residential property on substantially the same terms as residents — loan-to-value ceilings, tenor and pricing follow the lender's normal policy, with repayment required from your NRE/NRO/FCNR funds, inward remittances, or the rent the property itself earns. Stamp duty and registration charges are identical to a resident buyer's; the state does not surcharge you for a foreign address.

Renting it out: the NRO pipeline

Rent is Indian-source income, so it belongs in the NRO world. The tenant — not you — is the withholding agent: rent paid to a non-resident landlord attracts tax deducted at source under the non-resident TDS provisions (Section 195 of the Income-tax Act, 1961, now carried into Section 393 of the Income-tax Act, 2025 effective April 1, 2026). The standard practice is withholding at 30% plus 4% cess — about 31.2% — on the gross rent, with surcharge added at higher incomes, because the tenant cannot know your slab. There is no rupee threshold below which the obligation disappears. Source: withholding mechanics cross-checked against multiple tax-practice guides as on 3 November 2026; the official transition FAQ on incometaxindia.gov.in confirms the TDS consolidation into Sections 392-393 but the department's rent-specific FAQ page was not fetchable on that date.

The 31.2% is a collection rate, not your tax. Rental income is taxed as income from house property: municipal taxes paid are deductible, and a standard 30% deduction of the balance applies for repairs and maintenance — so a flat earning ₹40,000 a month (₹4.8 lakh a year) carries a taxable base of roughly ₹3.36 lakh before any home-loan interest, and your final tax is likely far below what the tenant withheld. Three repairs exist: a certificate for lower deduction in Form 13 filed online before the tenancy starts, treaty relief supported by your Tax Residency Certificate and the treaty declaration (Form 10F, renumbered Form 41 from April 1, 2026), and the plain old refund after filing your Indian return. Source: Income Tax Department, lower/no-deduction certificate pages.

Selling: the tax withheld before you see money

Capital gains on property follow the post-July 2024 rates. Immovable property is an unlisted asset, so the holding period for long-term treatment is 24 months; beyond that, gains are taxed at 12.5% without indexation, and within 24 months at your slab rate. Source: CBDT FAQs on the capital-gains regime effective for transfers on or after July 23, 2024 (Finance (No. 2) Act, 2024). One NRI-specific relief carries over from that framework: the surcharge on capital-gains income is capped at 15%.

The sale's real NRI moment is the buyer's obligation. A resident buyer paying a resident seller deducts 1% above ₹50 lakh. A buyer paying a non-resident seller must withhold under the non-resident provisions at the rate applicable to the actual income — 12.5% plus surcharge and cess on long-term gains, slab rates on short-term — and file the quarterly non-resident TDS return, with the credit landing in your Form 26AS and Form 16A. In practice, buyers who cannot establish the gain often deduct on the full consideration, which can withhold several times your actual tax. Source: Section 195 withholding per the Act; practice note cross-checked against chartered-accountant write-ups, November 2026.

Here is the arithmetic on a typical sale. You bought the Pune flat for ₹80 lakh in June 2019 and sell it for ₹2 crore in November 2026 — a long-term gain of ₹1.2 crore. The tax stack: 12.5% of ₹1.2 crore is ₹15 lakh; add 15% surcharge (the capital-gains cap) for ₹17.25 lakh; add 4% cess for ₹17.94 lakh — 14.95% of the gain. If the buyer instead withholds 14.95% on the gross ₹2 crore, that is ₹29.9 lakh stuck with the department until your refund processes. This is why the standard move is a certificate for lower deduction in Form 13, applied for online well before registration, which directs the buyer to withhold on the computed gain — not the gross price. Source: Income Tax Department, Form 13 process.

The exemption toolkit still works for NRIs. Section 54 rolls long-term gains from a residential house into another residential house in India; Section 54EC invests up to ₹50 lakh of long-term gains into five-year capital-gains bonds issued by REC and PFC within six months of the sale (interest currently around 5.25%, fully taxable, and the bonds cannot be transferred or pledged); Section 54F does the same for gains from selling any long-term asset when you buy a residential house. Source: Section 54EC mechanics cross-checked against REC's bond programme disclosures and multiple tax guides as on 3 November 2026. None of these require residency — they require the reinvestment, the timelines, and an Indian asset to reinvest in.

Repatriating the sale proceeds

Two windows, and which one opens depends on how you paid.

• Foreign-funded purchases. If the property was acquired out of foreign exchange remitted through banking channels, or from NRE/FCNR(B) funds, your authorised dealer bank can let the sale proceeds flow out — up to the amount you paid in foreign currency — with residential property capped at a maximum of two such properties across your lifetime of sales. Source: RBI Master Circular, repatriation of sale proceeds of immovable property purchased, FEMA regulations Section 5(A).
• Everything else. Proceeds of property bought from rupee funds, inherited property, or anything beyond the two-house limit land in your NRO account and share the USD 1 million per financial year remittance facility, with documentary evidence and a tax clearance certificate. Source: RBI Master Circular, USD 1 million remittance provisions; FEMA (Remittance of Assets) Regulations, 2016.

The paperwork has new names: for remittances on or after April 1, 2026, the declarant's form is Form 145 (the old 15CA) and the chartered accountant's certificate is Form 146 (the old 15CB), its particulars feeding Part C of Form 145. Source: Income Tax Department, Form 145 FAQs. Book the CA a month before the sale, not the week of the wire.

What goes wrong, and the fix

• The buyer deducts 1%. The resident-seller rate is wrong for you, and a short deduction lands you with interest and the buyer with a demand. Put the correct TDS computation and the Form 13 certificate in the sale agreement's timeline.
• Rent flows into NRE. FEMA permits current income in NRE only if it has not lost repatriable character; banks and CAs prefer rent in NRO, where the TDS trail and the remittance documentation were designed to work. Mixing streams is the classic audit headache.
• Buying agricultural land 'through a relative'. The purchase prohibition is yours regardless of whose name holds the title on your behalf; an arrangement to circumvent FEMA is void and both parties wear the consequences. Inheritance and genuine gifts from residents are the lawful routes.
• An inoperative PAN. Withholding provisions penalise a missing or inoperative PAN with deduction at much higher rates; check your PAN status before the sale deed, not after.
• No nominee, no will. Cross-border transmission of an Indian flat without nomination is a months-long project for your family; with nomination and a will covering the property, it is paperwork.

The order to do things in

1. Fix the funding source before the purchase agreement — NRE/FCNR if the money may ever leave again, NRO only for India-forever money.
2. Keep rent in NRO, and hand the tenant their TDS instructions (TAN, quarterly deposit, Form 16A) in writing at the start of the tenancy.
3. File Form 13 for a lower deduction certificate before you list the property for sale.
4. Decide the exemption — reinvest, 54EC bonds, or pay — before the six-month window closes, and park gains in the capital-gains account scheme meanwhile.
5. Plan the remittance in the same month as the sale: which window (two-property or USD 1 million), and who prepares Form 145 and Form 146.
6. File the Indian return for the year of sale regardless — the refund of excess TDS lives only inside it.

The rules are stable and the sequence is knowable; what punishes people is improvising at the registrar's office. Do the FEMA thinking at purchase, the tax thinking before sale, and the paperwork thinking a month early, and an NRI property transaction is simply a resident one with better preparation.

This is educational content, not investment advice. Consult a SEBI-registered advisor for decisions specific to your situation.